Michael Thomsen - Cage Kings

29:57So he's had to start just going out to find outside investors. And, you know, he couldn't find that many. It was it became a struggle in part because, you know, he had lost after seven, eight years, he had lost a sort of the public opinion fight because he had sort of accrued so many enemies during this period where they were trying to keep the company going. Well, including, I think, on the athletic commission there in Nevada, like Mark Ratner was someone who you mentioned that was averse to this, but was on very good standing with the Fertitta family to where, I mean, they could effectively grease the skids.

30:36But also something you mentioned early on in the book was, you know, the World Wrestling Federation was out there at the time. What we now know is WWE, you know, posts their famous lawsuit. And they were really the contractual model for the UFC even to today. Can you explain how WWE treated their, you know, their wrestlers and entertainers and therefore why that was beneficial for the UFC to copy? Yeah, sure. I mean, in short, they treated their wrestlers badly and took almost every right away from their wrestlers in order to control everything under a central brand. And Lorenzo Fertitta said that, you know, he had come from the world of gaming and gambling and didn't necessarily know a lot about running a media company or a sporting company.

31:22And so the first thing he did after he closed on the deal with Mairowitz to buy the UFC was he got every contract he could get, every business file he could find on the WWE, WWF at that time. in order to try and model the UFC on on some of the things that had made the WWE work. And arguably the most effective thing that they had going for them at that time was these expansive contracts with their wrestlers, which made every wrestler under contract with the WWF, whether it's superstars like The Rock or these small guys that you've never heard of that were wrestling exclusively on the regional scene in the weekly shows that wouldn't end up being televised.

32:17The WWE owned everything they did in terms of the characters they created, in terms of the costumes they might have come up for themselves, storylines they would have written for themselves. These wrestlers were even if those characters had been created before they signed with the WWF, once they signed with the WWF, the WWF took ownership of those creative assets. They had to participate in promotional promotional appearances, interviews, appearances, signed posters, do anything for no extra compensation. WWF retained lifetime rights to their appearance and likeness to use in video games or magazines or any other kind of form DVD sales.

33:09Anything they wanted to exploit to generate revenue in the future. There was no, you know, period of expiration where after five years, you know, The Rock gets his video rights back and he can go sell DVDs of his own fights. fights um so it was just a wide sweeping ultra exploitive contract and a lot of those same provisions ended up in ufc fighter contracts and they're still in the contracts today so the vertidas um they get the athletic commission to pass off uh and so the first ufc would be held in las vegas is at the mandalay bay um between tito ortiz and vitor uh belford Was this really kind of like the lift off of what we know as today's UFC?

33:57No, not really. I mean, this was sort of this was the beginning of a long series of failed experiments that I think Dana and the Fertittas tried. And in their early years of running the UFC to try and and reshape public perception around what the brand was. Sure. In those early days, they spent lavishly on stuff like indoor laser shows, indoor fireworks. A lot of the early shows in 2001 that you can go see, you know, you'll just see clouds of smog hanging in the arena and fighters walking out with towels covering their mouths because they had indoor fireworks. and those indoor fireworks would add a hundred thousand dollars or more to the cost the production cost of each event for like no real benefit sure um there was a lot of emphasis on celebrity they you know famously hired Carmen Electra to be the company spokesperson in 2001 even though she had no real relationship to martial arts and didn't know any fighters wasn't but it fit their target consumer though right that was their core constituent back to your 18 to 35 well they I thought so.

35:12Yeah. Yeah. I mean, I think that's what the the the idea was, that they could rebrand the promotion just through association. And, you know, you look at a lot of those early shows. Cindy Crawford is in the VIP section with Randy Gerber, who's a big Vegas figure in the business community and who's friends with the Fertitta brothers. Shaquille O 'Neal would come out. There was a lot of emphasis on recruiting celebrities to kind of appear on camera. sort of hoping that it would transfer. Like, oh, if this is good enough for Cindy Crawford and Shaquille O 'Neal, like, if they're not disturbed by this, you know, why are you?

35:52Yeah. But, you know, it didn't really work that way, right? I think it took them a few years to figure out the trick in the fight game. And this is sort of still true today. It's not about vanity or the spectacle necessarily. It's about creating a compelling story about the fighters themselves. Sure. And I think that a lot of what the Fertittas and Dana White got wrong in those years and spent extravagantly to try and do and lost a lot of money chasing that sort of dragon was building up everything around the cage rather than the fighters inside the cage. And once they settled on that reality show format where you could really kind of soak into the lives and backstories of, you know, basically unknown amateur fighters that had been competing on the regionals.

36:45You know, once people got a chance to learn their backstories and to see how much sacrifice and dedication they had to, you know, this dream of becoming a professional fighter, that immediately gave the fights a lot more richness and drama. and it created a path into caring about the sport that Cindy Crawford or Randy Gerber, Shaquille O 'Neal just couldn't give the average fan. Well, to your point, I mean, Joe Rogan shows up as the color commentator. And again, it was about this idea of kind of passion, like the draw to the sport and the draw to being there, right, around those fighters for him as well.

37:28Yeah, absolutely. I mean, I think that's the power Rogan kind of coming, coming onto the scene. He really, you know, he he uses hyperbole just naturally. It's just part of his vernacular and the reverence that he had for these people and the way he would just consistently talk about, you know, people that in another context would have been a punchline. Like when Tito Ortiz went on the Jay Leno show in 2003 to try and get him to come out to Vegas to see him fight Randy Couture, you know, and Leno is kind of laughing him off as some kind of dumb cage fighter. But then, you know, you hear Rogan talk about Tito Ortiz and he's like a world class athlete, a trained assassin.

38:12Like, you know, that degree of reverence, I think, transferred to the audience as well, where you're not just seeing how much, you know, the fighters care and how sympathetic their backstories could be. But then you're hearing this familiar person sort of talk about them in this sort of like reverential way. It created a totally different sort of frame around the UFC, and it helped people that weren't familiar with martial arts. It gave them a language to begin talking about it in their own life with their own friends. It described some of the more technical aspects of jujitsu or grappling or, you know, because, you know, even caring about the fighters, there's still a lot about mixed martial arts that was foreign to a lot of ordinary fans where, you know, even just the basic language of, you know, what is mount or side control or what's a go-go plata or, you know, I, you know, what's a one, two, you know, it's a one, two, three, you know, but having little bits of jargon to throw in and sort of learn while also kind of participating in this fan reverence that Joe Rogan helped them model.

39:28It really sunk the hooks in, I think, for a mass market kind of culture to form around the brand. So Kevin K becomes pivotal at Spike TV. I think there's a couple points in this book where you do such a good job of explaining some of the demographics and also the economics at play you know, in the early 2000s versus the mid 2000s. And I think, I think like any reader in your book can go to, I mean, you could be a 20 year old kid and have some understanding what was happening at the time through your book, which I think is excellent. Um, but, but Spike really played into this kind of from multiple angles.

40:07Um, it not only had the demographic that was likely to meet this. Um, it also was in some ways attached to the hip with WWE as well. Um, can you kind of teach us a little more about what Kevin K and Spike put together? Yeah, sure. It's an interesting his Kevin K is an unusual character in his own right. He largely came out of the world of family entertainment animation. He had been an executive at Nickelodeon and worked on managing a bunch of animated series for Nickelodeon. And when Spike was created, Spike was originally, it was originally a country focused channel called TNN and Viacom wanted to rebrand it because they already had their own country channel.

41:01So they wanted to rebrand TNN as something different to pursue a different kind of audience. And so they had an internal kind of contest to see who could come up with the best concept for the channel. The winning concept ended up being this sort of male focus prestige network for young men, 18 to 34, which in the mid 2000s, early 2000s, that was the most lucrative marketing demographic you could in cable television, in part because that demographic wasn't watching television anymore. Hard to get to. Yeah. Yeah. The beginning of the Internet age. These were guys that were more interested in video games and, you know, file sharing and just online message boards like they didn't they weren't watching Friends and Seinfeld and ER, The Bachelor, Survivor, whatever, whatever was big on television at the time.

42:04So the so because of that, cable channels could charge an extravagant amount for any kind of programming that had a high percentage of these these guys in the audience. And so Viacom went all in on trying to create a channel that was just about attracting those kind of viewers. And so they came up with the idea of Spike. And they had actually inherited a media licensing deal with WWE or WWF at the time. And so that was a big success for them. But they also, you know, they had a limited budget. You know, even though they were backed by Viacom. Viacom had only given them around$75 million a year to pay for their full broadcasting budget.

42:56So they had to come up with 24 hours a day, seven days a week, 365 days a year of programming with$75 million to split up between funding original programming or acquiring licensing rights for reruns or older archival stuff. So it was a real kind of puzzle for Kevin K to kind of split up that pretty limited sum. And one of the best bets he thought was to get something related to sports. So he really wanted to create a new sport. That's what he told me when I spoke to him. He was really looking for a way to invest in something that would be kind of equivalent to the NFL or NBA for the 21st century for this new generation of young men.

43:47And he tried something with slam ball, which was this very short lived attempt to sort of like a circus basketball game. It was basically three on three basketball with trampolines on the court. So you would get these like unbelievable highlight reel kind of ready slam dunks, which initially got a lot of people interested in the sport but then it interests kind of wane because people sort of realized not not unlike slap fighting today there wasn't a lot of sport there it was just a series of highlights kind of duct taped together but there wasn't actually like an internal sort of drama to the game itself but by the way real quick on that I just saw slap fighting last night because I had peaked it.

44:35I think it was Joe Rogan's Twitter and slap fighting was up on it. And I just, I was blown away that that was actually going on. It's real. Yeah. Yeah, no, it's real. It's real. It's depressing to watch. You're like watching people go out cold is depressing. Yeah. And that's, you know, if, if you just saw that on Twitter, scrolling through in between 20 other things that are occupying your mind, you know, you might think it's like interesting or something or be at least you stop and watch some videos. Yeah. Yeah. But when you watch a two hour program or an hour long program of that, it really, it doesn't quite have the same, um, same drama.

45:14Um, but that was kind of the same thing with, with slam ball, you know, it was, it was all highlights and eventually you just kind of go numb from just seeing the highlight over and over again. It's like, you lose the appreciation for the specialness of it. So, So Kay found through a couple of different sources, he got hooked up with the UFC. Dana White and the Fertittas had been trying to sell media licensing rights for the UFC in North America for a long time. No one wanted to buy them. You know, they'd had some marginal success here or there, some marginal interests. But none of the big networks, no big cable channels were really willing to take a big bite out of the UFC.

45:59But K-Site's two sources have brought the UFC to him. One was an intern who had just graduated from NYU and had grown up watching the UFC on pirated VHS tapes and DVDs. And, you know, he says all his friends in the dorm were trading these tapes. They were all big cage fighting fans. And so, you know, as an intern, he brought, you know, one of these DVD compilations to Kevin Kay and said, you should consider this for Spike. And another source was another Spike executive, a talent acquisition executive who had, I think, heard that the Fertittas and White were pitching this and told Kay he should take a meeting with them.

46:44So eventually in late 2003, early 2004, Kay agrees to meet with White and the Fertittas. And they don't have a particularly good meeting, but Kay is interested in finding a way. He sees the value in the UFC. He just doesn't see a way around the controversy. And he was a skeptic of putting fights on TV alone. So you needed a different way to package the UFC other than just, you know, a two hour night of fights, which is what White and the Fertittas had originally pitched to him. And so they spent, you know, five, six months going back and forth with meetings, trying to come up with different concepts.

47:33And eventually they settle on a reality show where it wouldn't be fights, but it would be 16 fighters living in a house in the traditional kind of reality show formula, all competing for a chance at a UFC contract. Once Kay heard that and once the Fertittas presented it as something that Spike wouldn't have to pay for themselves, they presented it as a barter deal, which would mean that the UFC would self-finance the full production of the series and give the rights to Spike in exchange for a cut of the advertising revenue. So that$75 million budget that Kay had to work with for the year, he wouldn't have to spend a penny of that on this series.

48:20It was an original series, so it wasn't going to be like reruns that they were going to have to try and, you know, polish up and make seem exciting again. It was original first run content, but he didn't have to spend a penny on it. So he dove at the chance. and uh that's really kind of what brought the ufc back out of that five six year slump it had been in after semaphore had sort of really started losing some of those big political battles in the 90s when i think you pointed out that what uh the ultimate fighter was replacing was takeshi's castle which if if you've never seen takeshi's castle for our listeners i highly recommend you Google it.

49:03It is very funny content. It's cheap content. But at the same time, think of the excitement of going from laughing your head off at that kind of content versus now you're into a storyline, you're invested in people's lives and you're watching people fight. That's a completely different world. They had this big idea for what the channel would be. Kevin K's boss at the time had sort of created this idea that Spike would be the equivalent of Esquire for young men. But as a cable channel, like Esquire magazine. Um, and as a pitch, you know, as a PowerPoint presentation, you're like, Oh, that'll that's, that works great.

49:42But then when you see how they had to execute that with$75 million, you know, and it's like, they didn't have a lot of options to do something that elegant. So they really, they, Takeshi's castle was something, it was an 1980s, the 1980s series from Japan that they got a very cheap licensing deal for just air reruns of it. And they just paid a very small fee to have American voice actors kind of talk over top of this Japanese, you know, stunt show, basically, whereas it was a bunch of different contestants each week taking turns trying to run through these elaborate these elaborate stunt kind of obstacle courses and it's a lot of slapstick humor and stuff.

50:28Very funny. Yeah. Yeah. Very cheap too. Very, yeah. Very hot. I mean, you think it goes to show you like, if it makes you laugh and it's cheap content, it becomes highly profitable though. Um, so let's, let's pivot. Cause I think in thinking about this, you know, you've, we've kind of talking about, there's almost like an audaciousness to the sport where, um, you know, it has that aspect of like, it needs to draw eyeballs it needs to be incredible but you also need to as you mentioned earlier people got to be invested in the things that go outside the ring dana white was fully opposed to female fighters at one point okay did it just suddenly become with ronda rousey okay this will draw people to the sport therefore we should do it a large part of it was that i think another part was that he saw how dominant Ronda Rousey was being.

51:19Sure. You know, women have been a part of the UFC from the beginning in a lot of ways. You know, the very first UFC, you know, I kind of mentioned this in the book, arguably the most credible commentator at the first UFC was Kathy Long, who was a champion kickboxer at the time. And, you know, she was as insightful as anybody on the broadcast team. And in those early days, Don Fry and Dan Severin, they trained with Becky Levi, who was a judoka and had specialized in physical education. And she really helped them train and build up their own fight games. And she would later compete in women's mixed martial arts and some of the early shows that had women fighting in the 90s.

52:06So, you know, they had always kind of been there in the periphery. But seeing someone like Ronda Rousey, who had this Mike Tyson sort of appeal in terms of she's just finishing every fight in the first round. You know, it wasn't like, you know, even Gina Carano, who, you know, had her sort of brief rise in 2007, 2008. You know, she wasn't like this terrifying great white shark of a human being that, you know, was an unstoppable force of nature. It was really she was a super tough woman and she had a lot of tough kind of brawls for elite XC, Strikeforce. But, you know, you could see where she might be vulnerable also.

52:56But Ronda Rousey, she just dominated people. She didn't fight people. She dominated people. And I think it was that combination of knowing that some of the UFC's biggest competitors at the time were having success by promoting women's fights and then seeing Rousey in particular emerge as this, you know, extraordinary dominant figure. And then, you know, the third factor is she was beautiful and she was blonde haired, you know, very traditionally feminine appearance, like wasn't, you know, wasn't sort of like controversial in any way. It just played right into the sexist tropes of, you know, men's publishing at the time, just fit hand in glove with what everyone assumed an ideal woman should look like.

53:48it was just you know three for three and so you know the last real obstacle was that she was under contract with Strikeforce Ronda Rousey was which was one of the UFC's biggest competitors at the time and the UFC acquired Strikeforce so then suddenly they had Ronda's contract and so they brought her over. So then, you know, after Ronda, you know, enter Conor McGregor, right? And to your point, like someone investing in the life of the fighter, I think you talked about the number of pay-per-view buyers coming out of Ireland to watch him at one point. And then he fights in Vegas and 10 % of the entire audience flew from Ireland just to watch him.

54:36I think, you know, he really typifies in your writing and this storytelling, you know, that story behind the fighter, how people bought into him as a fighter. Yeah. You know, it was part of the company's push into international markets to kind of build their business and to sort of supplement. You know, they're still incredibly reliant on pay-per-view and pay-per-view is almost exclusively a North American revenue stream, not exclusive. They got pay-per-view in other markets like Australia and Canada, but it was really the U.S. market that had, you know, the biggest financial value. And that also made the UFC incredibly vulnerable.

55:19So, you know, starting in 2007, they really started putting an emphasis on building out their international licensing business as a way to kind of hedge any shortfalls they might have or ratings dips or pay-per-view dips in the North American market. by signing as many deals as they could internationally. And part of that was putting on more shows in places like Ireland, the UK, Germany, Australia, went back to Japan, you know, just Brazil, Mexico, everywhere they could go, they wanted to go so that, you know, they could have as diversified and sort of viable a company as possible. And part of that also, it helped them manage labor costs.

56:05Sure. Because fighters coming from other markets, you know, a lot of them were willing to fight for even less than fighters in the U.S. were willing to fight for. They had a lot more incentive. They're coming from places with depressed economies or where work was was harder to come by. And that, you know, if they could succeed on an international platform. You know, that would immediately create this flashpoint of national pride, which I think happened with Conor McGregor McGregor. You know, the story famously was that he was living on welfare, 200 euro a week welfare check. He was unemployed and just training full time to chase this dream of becoming a world champion mixed martial artist to kind of avoid having to live this depressing reality of being a tradesman or a plumber, which is what he worked as briefly.

56:59when i'm gonna i'm gonna quote from your book uh quote in just over two years he had traveled through the whirling magic of exponential growth where money had magically come from money the way chips seemed to replicate almost on their own on a streak at the craps table passerby brought to a standstill by the infectious glow of good fortune end quote a i love playing craps tables whenever i get the chance um and the b part of that is that was a perfect analogy for thinking about not only McGregor, but just in how this was like a game, this was like a massive casino act. Um, you know, like Rousey was a hot craps table and there was a crowd and the drinks were flowing and it was tons of fun and same with McGregor, but on the flip side, they crapped out.

57:44They eventually had to crap out. Well, I mean, that's, that's another reality of mixed martial arts. It's too complicated for anyone to master for any period of time. Sure. So, you know, eventually Conor McGregor will meet a, you know, Dagestani wrestler like Khabib Nurmagomedov, who's been wrestling for 25 years, his entire adult life. And there's no amount of training that Conor McGregor or someone that started training or fighting professionally at 18, that you just can't catch up after a certain point. So as good a puncher as you might be or a kicker, eventually you're going to find someone in another discipline that can beat you.

58:27Same with Ronda Rousey. As good at judo and grappling as you might be, there's an Olympic boxer out there that can just keep you at distance so that you can never even start your grappling game. And so, you know, everyone eventually loses. And to a certain extent, the UFC can kind of have a substantial influence on when that happens by choosing, you know, what kind of risks to expose their fighters to at what stage in their career. So they can kind of put a thumb on the scale of how long these craps runs to kind of continue the metaphor go. And they can kind of pick and choose like when it's time to press and try and build up, you know, a fighter who might be on a streak.

59:14But, you know, the streaks also, you know, like, you know, like we were discussing, I think maybe before we started recording for a lot of these fighters, you know, the majority of their earning power comes after they start losing. You know, for fighters, they cash out on their losses. The wins are what sort of allow them to renegotiate new contracts and get better terms than they could have as just young prospects or new signees. But once they establish themselves as, you know, highlight real world champions that can bring in a million pay-per-views and have, you know, half of Ireland fly over to Las Vegas to watch them fight in an arena.

59:56Now they can start earning pay-per-view points. Now they can start, you know, pushing for a million dollar purses and all these secret side letter agreements for even more than the standard UFC contract would pay them. And then, you know, when the wheels fall off and they start losing, well, they're already they've leveled up now so that they're making more from their losses than they ever made from their wins. And certainly true of Conor McGregor. Yeah. His biggest win of his life was actually, you know, his fight against Floyd Mayweather, which, you know, became started as kind of like a social media back and forth fun and games.

1:00:36kind of reminds me of Elon and Mark Zuckerberg possibly going at it, for example, to an all-out Vegas-style fight. And I think the other thing that our listeners have to read this book for is, Michael, I think you do such a great job in fight explaining what's going on, what transpires, how the reader should think about it. Because after I read the book, you had really done a good job of explaining that McGregor was punching and landing, but not with power. Okay. And so I actually, before this podcast, uh, that recording this with you last night, I went back and watched the first nine rounds of that fight at home.

1:01:16And I thought of two things, a, how accurate you were. He landed a lot of punches, but didn't do with power. And I watched Mayweather how often when he'd go to punch, even on a miss, he was turning his full back and there was shifting his hips into the punch. But then I also thought about the difference between fighting with boxing gloves versus what they do in the MMA, where it's more bare knuckles, right? When you get hit, it's going to feel in a boxing glove, you need to punch with force because of the padding of the glove. Yeah, it's a subtle difference, but a massive one at the same time, you know, as a spectator, you know, it kind of looks like the same thing.

1:01:53It's just a jab, right? But the effectiveness of it requires a completely different technique about how you root yourself at the feet, how you, you know, position your fist, the kind of timing you place on it. And in part of that's because in MMA, you know, when you jab, you're risking someone shooting underneath the jab to try and take you down for a wrestling takedown. You know, there's a whole part of the fight that just doesn't exist in boxing. Yeah. You're half committed in that case. Yeah. So everything about your weight transference and everything else from ground up about how the punch is constructed and timed and how the conditions for that window of timing, it's sort of poking through.

1:02:36It's just it's it's completely different. And, you know, it was not unlike the Nurmagomedov fight where it's sort of, you know, it was an activity filled fight. But at no point was it especially competitive to my mind and by what it looked like to me. There was no point where it seemed like, you know, in spite of everything McGregor had said in the buildup, it's just it just takes one punch and all this other stuff. You're too old. You're too small. Everything else. Well, you know, I kind of write this in the book, but he got that punch in the first round, that famous uppercut you see again and again in the highlights now.

1:03:19You know, he got that flush power pun. That's one of the most powerful punches you can land on someone in part because most people don't see uppercuts coming. They just completely surprise you. And you see Mayweather's head whip completely back. And that was the punch McGregor had promised would knock him out. And you see how little effect it actually had and how everything about McGregor's game as an MMA striker was suddenly just reoriented into boxing. It was like, oh, it's going to take 20 of those, not one. You know, in the UFC, that might have been a knockout punch. totally but in boxing you know it's just like no you have to do that 20 times and you know the difficulty of setting that up and conditioning your opponent to continually be open to that kind of punch that's just a vanishing window over the course of 12 rounds with someone as experienced as Mayweather agree I was also really impressed with the the tempo the changing from southpaw to orthodox i mean you could see the pure athleticism that conor mcgregor can bring to any fight even if he's to your point he's completely out of style and technique for the sport it's impressive let's let's flip let's flip over to um ari emmanuel because he obviously he represented the ufc for years as a client um he ends up you know going on this rampage of taking endeavor he rolls william morris agency into it he rolls the sports agency img into it and then ultimately comes after UFC to be the buyer to take out the Fertittas.

1:05:00What was the rationale for putting all these different, you know, clientele lists and entertainment assets together? Yeah, that's a million dollar question. He would say it's the billion dollar question. Yeah, it's a mystery box. It's a J.J. Abrams mystery box. I mean, it's there is no point Like there is there's nothing inside the box. It's just pure cancerous growth. It's growth without purpose. You know, it's sort of, you know, it goes back to, I think, Ari's original sort of motivation as as an agent. There was a great interview he gave, a very short interview, and he was listed in one of these Hollywood reporter, you know, most powerful young people, up and comers in the industry.

1:05:44And they asked him what his ambitions were and what his ambitions for the future. And he said, besides power and money, I don't have any. I'm still trying to figure it out. And I think he still hasn't figured it out, but he's just on this acquisitive quest where I think, you know, the more he can sort of sweep under his his ownership banner, the the more purpose he thinks he'll have. But when you look at the individual pieces, none of it connects, really. It's all just sort of opportunistic and what he can do at the time with the resources he has available. But there is no vision. He doesn't have a vision.

1:06:28He just has he has power and leverage and access to capital and fear. People are afraid of him and that's it. And so he can just ping pong around the industry, inhaling these bizarre bull riding F1. You know, he tried to and failed UFC, you know, WWE. Well, yeah, so I don't I don't in that respect, access the capital, et cetera. You know, originally when I was reading your book, I thought, well, you know, you could kind of see where they could take their agents and go to these fighters and kind of roll out their brands, make fees off of selling them to other sponsorships and products. So that part made some sense to me.

1:07:11But to your point, I also think a lot about the UFC deal they put together, right? They bring in Silver Lake. They're using just the dirt cheapest interest rates of all time to put this deal together. By the way, to your point, a deal that could never get put together ever again. It would never be allowed. When the Federal Reserve has to ask about the deal terms, you know that it's levered. So I don't disagree with that. But I think another little interesting tidbit that you put in the book, and I felt like, oh, I was like, well, this is why God set us up to talk about this book. You mentioned George Gilder and how Ari was influenced by George Gilder's book, Life After Television, and how he looked – Gilder really has built out this framework for the network effect of our lives that was going to overrun with what he thought – I think he thought the internet was going to be big, but he didn't know exactly how it was going to play out other than tens of thousands of networks.

1:08:06and interestingly when you mentioned that it just made me chuckle because um i'm i'm on the board of discovery institute in seattle which is was co-founded by gilder and we've done a podcast with gilder on his life after google and look forward to doing his new book that he recently launched but um i'm also on the programming committee for cosm which is a big conference that that discovery hosts up in bellevue washington with gilder and i met harry emmanuel at Cosm two years ago, funny enough. And my interest to your point was, you know, he's been around the entertainment business for so long, I wanted to ask him about Warner Brothers Discovery that was getting put together in that, you know, the latter part of that year when I met him.

1:08:46But when you look at, you know, what's now WWE and UFC, they're announced as of the spring to be rolled together into this kind of co-listed asset referred to as TKO Holdings. well i mean is this just you do it because you can do a deal and and put it out to investors is it is this just deal making not really trying to make the best of the asset i actually i think this is trying to make the best of the asset the merger with wwe in part because you know the ufc is a mature business now and wwe has been a mature business for a long time sure um so they're at a point now where they're both big you know the UFC makes a billion dollars a year plus every year now that you know it's still a fraction of the NFL but it's a billion dollars is a billion dollars that's a massive business unto itself amount of money yep so I think in putting them together Ari is just sort of helping to create more growth out of two mature businesses by like trying to you know like he can go to sponsors now and say you know instead of doing a 20 million dollar deal with Nemerov vodka or whatever how about you do a 35 million dollar deal and we'll spread you across the UFC and WWE we'll do some like specific fighter placements we'll put you on the you know I'm just sort of inventing a term here for Nemerov I'm not 100 sure how much Nemerov is paying but But like, just as an example, he can get more out of sponsors by packaging together two mature kind of platforms instead of doing one one off.

1:10:31And, you know, both both companies have struggled with ratings and pay-per-view buys and streaming numbers. You know, WWE had its famous challenges trying to launch its own streaming service and transition its pay-per-view business to streaming and subscription, which, you know, had some had some, you know, some favorable and some unfavorable kind of outcomes to it. And the UFC now, we're starting to see a lot of cracks in what has been 30 years, let's say 20 years of pretty continuous growth. Sure. You know, the most recent ratings of people, you know, this has been the headline the last couple of weeks.

1:11:13The Conor McGregor season of The Ultimate Fighter has just had disastrous ratings on ESPN, the cable channel, not the streaming side. But, you know, they're getting three and four hundred thousand viewers per episode for the UFC's biggest star. I mean, it's hard. It's hard if you're already a manual to look at numbers like that and then go into Bob Iger and say, hey, we want double our media. Like they used to be able to do with Spike. Yeah. Yeah. And so it's it's an interesting pattern, too. If you look back at, you know, Spike is long gone now that like that whole concept, you know, that turned into the Paramount Network and that turned into Paramount Plus.

1:11:55you know it's another sort of point I argue a little bit in the book is that the UFC has really sort of taken advantage of industries in decline that the pay-per-view market in the 90s was really at the end of its sort of growth spurt people were starting to realize that there wasn't actually as big a market for original pay-per-view programming as they had hoped for in the 1980s and the UFC was kind of the last gasp of that. And then, you know, the second life the UFC had with reality television in the mid 2000s, that was in a lot of ways, that was the last gasp of cable television before the streaming era where, you know, people slowly started canceling their cable subscriptions and turning to the Internet for culture and content instead of TV and radio.

1:12:44And they were able to charge premiums to these, you know, mature businesses in their own right, like Viacom or ESPN or Fox Sports that were hoping to just hold on to their position in the market by trying to find premium content that would sort of continue to justify that. And I think, you know, you could argue maybe that the ESPN is kind of at the end of their rope now, too, where it's just they're never going to be what they were in the 90s espn is and so the idea of paying premiums to someone like ari and dana white for ufc content may no longer make sense sure what else because your point that before they were attaching to a platform now they kind of have to be the platform and the one thing in media lately is i mean even the platforms are having trouble today so so it's like you know if you can't be the platform you're going to be subject to the other platforms in effect yeah and you know i mean it's interesting if you go on espn.com right now you'll see go click the mma tab espn is clearly hedging their bets by also broadcasting the pfl espn plus is also making the pay-per-view of the jake paul and nate diaz boxing match this weekend i saw that i was yeah i was actually thinking that would be fun to watch after reading your book yeah so like Like there's, you know, they're they're very sort of conscious of making sure the UFC isn't their only option in terms of continuing to have a presence in mixed martial arts going forward.

1:14:27In part to, I think, you know, lessen the amount of leverage that the UFC has had on a lot of other broadcasting partners because they control so many of the top fighters in the world through these exclusive contracts they have with fighters. So, I mean, we'll see. Everyone is sort of, you know, I mean, the UFC will not be bankrupt. Ari is not going to end up homeless on the streets. You know, he's he's already a success story. He won already. Dana White. Oh, no. Yeah. The Fertitta's one. First world problems. Yeah, first world problems. Yeah. And, you know, declines in mature businesses are not doomsday scenarios either.

1:15:08They're just sort of difficulties. And so I think it'll be interesting to see what happens with the next round of media rights. We saw this happen with the apparel sponsorship that UFC had with Reebok. They had the seven-year deal with Reebok. And that, you know, they hit a wall in negotiations where Reebok, you know, they decided not to re-up the deal. And UFC, I think, had wanted originally to get an even more lucrative kind of blue chip sponsor for the apparel with like Under Armour or Nike or one of these other like top tier athletic companies. And they wound up with Venom, which, you know, in a lot of ways is a smaller brand than Reebok.

1:15:54For what sounds like an equivalent amount of money, it was sort of like a sidestep deal. And a lot of people have described it as kind of a placeholder deal. And I think bundling the brand together with WWE, which if you look back over that 20 year period, the UFC and WWE, they were kind of stocking horses for one another. So when the UFC took off, Spike decided to drop WWE because WWE was expensive. They still had a limited broadcasting budget and Vince was difficult to work with. And the ratings weren't necessarily there either. So they went all in on UFC and the same when Fox Sports lost the UFC to ESPN, they signed on for WWE or like this is a similar audience.

1:16:43It's sort of males, 30, 40 year old males now. You know, we can still kind of hit that and provide that the audience reach to the advertisers and get that revenue. To your ESPN point, the exclusivity, you know, you talked about the exclusivity to these fighters or whatnot. How incredible was Fight Island for the pandemic? I mean, I just think of like it was the only thing you could watch on TV for live sports. And they owned the only live sport going on at the time. I think Fight Island in a lot of ways was it was a distraction that kept and it was a fundraising opportunity. Ari, you know, he got a substantial amount of money out of that deal.

1:17:30You know, that was sort of the genius. Like I've been talking to some smaller promoters in the U.S. And, you know, they have to pay venues site fees to to get, you know, arenas to let them host shows at, you know, some of these different venues around the country. But the UFC is big enough now where they'll have venues or even, you know, governments pay the UFC to bring shows to to their location. So I think that's kind of what Fight Island was. But I think in terms of the covid shutdown, that was, you know, I kind of point to this in the book a little bit, too, about the UFC really built up infrastructure around Vegas in terms of the apex where they can broadcast live anytime they want.

1:18:17You know, there was talk. I think this may have stalled out at this point, but there was talk of the UFC building its own hotel attached to the Apex so they could fly in fighters into Vegas and broadcast live. So, you know, I kind of threw a line in where it's like if the whole world melted down, they like the UFC still has the broadcasting and production infrastructure, thanks to covid. So keep on going week in, week out, whether there's nuclear war or there might not be an audience, but they can still be outbreak. Yeah, the show must go on. So so we didn't we haven't we kind of touched on this with the fighter contracts.

1:19:01You mentioned Rob Macy in your book. Rob Macy is, sure enough, an attorney here in Phoenix. He also, I didn't know this until I looked him up, but he also went to my dad and my alma mater, Whitman College, which I was kind of proud to see that. You know, I look at Arizona as kind of this really interesting state, you know, from a political perspective, because you have like people like Rob Macy out there advocating on behalf of these fighters. But then secondly, obviously, this is where, you know, the OLLI Act came out of from, you know, former Senator John McCain. So I look at Arizona as kind of this interesting place where there's advocacy.

1:19:37There is a legal precedence that's rose up out of here. And yet at the same time, these these MMA fighters do not have the protection of boxers. No, there's some debate about just how effective the OLLI Act is, too. I think it would be better for UFC fighters if the Ali Act extended to mixed martial arts and protected them, too. But there are a lot of people in the boxing world that are pretty skeptical of what the Ali Act is actually doing. Because there's no regulation of it, assumably? There's no enforcement, I think, is the biggest concern. There's all these sort of stipulations in the text of the law, but there's very little enforcement.

1:20:21Um, there's not none. So like there, there've been a handful of famous lawsuits that have come out of it where fighters, mostly like famous rich fighters already have tried to stand up to their promoters and sue for, for violations. Um, but it's tough to do. It's time consuming. You need money in the first place. And, you know, it's, it's like any other legal issue. Like, you know, you can have you can write a thousand laws that say it's illegal to chew bubble gum. But if no one's going to arrest you for it or run you through court for it, it doesn't matter what's on the books or what isn't, you know, like jaywalking in New York.

1:21:03You know, it's technically it's illegal, but, you know. No one's going to enforce that. It's an unenforceable law. So I think that's been something that has benefited the UFC tremendously. And it's benefited Dana White. I mean, one of the interesting things that kind of came up again and again is how often Dana would go directly to fighters during contract negotiations and would cut out their representatives or managers or agents and just go directly to them. You know, Randy Couture wrote about this in his memoir where Dana would say, hey, your agents are real jerks. I don't like dealing with them.

1:21:46I can give you a better deal if we just, you know, work together with me. You know, and Couture suggested at one point he considered filing a tortious interference suit against the UFC and Dana White for trying to undermine his relationship with his representatives. And that's something that has been a repeated issue. No one's actually done it. You know, there may be something questionable about the behavior. It's sort of, you know, it's an open question. I think Ronda Rousey, in her memoir, she spoke about negotiating to be a head coach on The Ultimate Fighter very early on in her UFC tenure.

1:22:29and her manager at the time had asked the UFC, according to her, for something like, I think it was$20 ,000 per episode or something. It would have been the equivalent of like$250 ,000 for the full season for being the celebrity host of the reality show, which, you know, as far as TV contracts go, that It seems like a reasonable sum of money for a global celebrity to be one of the main figures. But Rousey says Dana called her directly, didn't call her manager back, but called her directly and said threatened to kick her off the show. And if that was the kind of money she was going to ask for. And so she was so afraid of losing her place in the UFC at that point in her career.

1:23:21You know, she hadn't completely established herself yet that she wound up taking whatever the UFC's baseline offer was, which I think at the time was something like eight hundred dollars or a thousand dollars per episode. It was a very basic honorarium, which also included an apartment to stay in and, you know, living expenses during filming. That was a huge difference. And then Rousey wound up dropping the representative a few weeks later, not a few weeks, a few months later, let's say. But, you know, these are and this this is stuff that's ongoing. I think that like the UFC has a history of extremely contentious negotiations.

1:24:07situations. Um, and, you know, there may be points where not everything that they've done has been, you know, on the up and up and, but, you know, if there's no, if there's no body there to enforce it and if fighters themselves, the risk of trying to challenge that kind of behavior could mean losing your entire career as a top tier mixed martial artist. And you have to go back to the regionals or a much smaller promotion to finish off your career and you get blacklisted in the biggest promotion in the world. You know, it, it may actually be the best thing for your career to do is just take the terms you're given and hope that eventually, you know, you can reach Conor McGregor status or deliver enough viral knockouts that, you know, you can make up the difference.

1:25:04Yeah. The other thing too, I thought of that on that subject was it kind of reminded me like if you were in baseball, you were an owned asset for a very long time. Free agency was not such a thing. And it's almost like if you, after I got done with your book, I thought, wow, UFC has to have like a free agency moment. And you actually have to have all the fighters all at once say no. And, but that's a very tough thing because the incentives, like we talked about, some of these people are making no money uh just to make ten thousand dollars per fight is a huge uptick from where they're at therefore the incentives don't align to cause them to want to do that yeah and i mean it's i abandoned i was originally going to do a story about how the the ufc or mixed martial arts fighters could organize kind of similar to what happened with baseball in the 60s and 70s you know it it's kind of written out of the history a little bit but um you know people point to Kurt Flood and the Supreme Court case and the strikes and everything.

1:26:01But a big part of what made that strike possible, because you had a lot of the same issues at play in Major League Baseball, where a lot of the players, they're already making 50, 60, 100 thousand dollars a year. And they didn't want to risk that for, you know, the chance to become millionaires. They were like, you know, they were just playing a game and they thought they had already lucked out getting a full-time salary for something as frivolous as being a sports player. So they didn't want to rock the boat. But the one thing that made it possible to get so much buy-in for some of the big strikes that happened in the seventies was Marvin Miller was able to negotiate a separate revenue stream for the players association through baseball trading card deals.

1:26:51And that funded those strikes so that it mitigated the risk that a lot of the more skeptical players faced. And I think, you know, if mixed martial arts fighters are going to have anything resembling, you know, a similar kind of like fight with the UFC or Bellator or some of the other big promoters in the sport, it would really have to start with some kind of entrepreneurial entrepreneurial organization where they would create like their own separate revenue stream as a collective, independent of the promoters in the same way that those baseball trading card deals were independent of the team owners, independent of the league.

1:27:35You know, they couldn't use the logos for the teams, but they could use their own faces as players. So, and in a lot of, there's a lot of tools available right now with streaming, you know, Jake Paul's rise as a YouTube celebrity and the number of big UFC stars that have YouTube presences, they have Twitch streaming channels. Well, those are effectively today's trading cards, though. Those are the personalities you get to stare at. Yeah. So you could you could do something collectively as an MMA fighters group or however you wanted to brand it. You know, have and it wouldn't be enough to give everyone a full time salary, but it It could be enough to start, you know, providing some some benefits to retired players, maybe build up a strike fund to maybe do their own costs covered.

1:28:26Yeah. And if you could almost do your own sponsorship deals to like, you know, if Nike doesn't want to sponsor the UFC because it's too questionable or whatever, but maybe they could go do a sponsorship deal with Zhang Wei Li. And, you know, she can't wear it at UFC events, but she could wear it on a YouTube channel or a Twitch stream. Sure. Or, you know, some of these famous fights that we never got to see happen, like Tony Ferguson and Khabib Nurmagomedov or George St. Pierre and Anderson Silva. Well, you know, maybe you could do a sort of light fantasy spar and put it on YouTube and get 10 million views of like George St.

1:29:05Pierre sparring three rounds with Anderson Silva and headgear and boxing gloves. You know, it's not the same as a real fight, but in terms of just creating this like a supplemental revenue stream and something that wouldn't be completely dependent on the UFC as a platform for, you know, anything a fighter could do to make money for themselves. You know, I think there's a lot of opportunity there. Agree. And to follow on your craps analogy, you don't make money on the craps table playing the pass line. You make money behind the pass line, ultimately. And that's the difference between being a hundred thousandaire and being a millionaire in this sport is taking the risks to make really the big money on the table.

1:29:49So completely agree with you on your baseball discussion there, too. There's a lot of things we didn't talk about. I'm looking through my notes. I mean, this is such a fun book, Michael. I love this book. This is our first sports book we've ever done. And I was kind of hesitant to do it because I thought, oh, I'm a guy. it's going to be so stereotypical but the business side of this the stories of the fighters the passion you have for the sport just leaked out over and over again the backstories of like chris albrecht at hbo and what scuttled their deal then and you know how the vertidas looked at this like discovery channel um for the business and all this stuff that you know like i said earlier the demographics you talk about how of all the things we talked about is there anything else that we we haven't discussed that you do think needs to be mentioned for this book i mean The health care thing, long term health care thing, retirement benefits, I think, is an ongoing issue that I think everyone should focus on.

1:30:48Even more important than the sort of vanities of Ari Emanuel as a business person and, you know, the rise and fall of the UFC's like licensing deals and sponsorship deals and all that kind of stuff and the armchair quarterbacking. I think there's still a very active live issue and problem with how mixed martial arts fighters are treated after their careers are done in terms of access to health care, retirement benefits. You know, Stefan Bonner just passed away. You know, he was pivotal in the UFC's history. He was one of the one of the original finalists on The Ultimate Fighter that helped turn the company around.

1:31:30You know, he had a long struggle with substance abuse in his post fight career. He took a lot of trauma during his days in the UFC. And, you know, he seemed to struggle, especially in his final years without access to health care treatment for substance abuse and all kinds of other chronic pain symptoms that sort of help push him deeper into these substance abuse. patterns. And, you know, I think there's a lot of people like that who are less famous, but that still wind up suffering. And that that to me, I think if if there's an ongoing kind of storyline that could come out of the book would be a continued kind of focus on that and a continued pressure on the UFC to treat, you know, not just its celebrity fighters, but all of its fighters better after retirement in terms of health care and at least some kind of financial benefit.

1:32:35I think that's the most important thing. That's one of the things I'd like to focus on myself. And I agree with you. I think that human aspect, like, you know, we can look at the success, but what goes on on average under the surface to the fighters that we don't see, I think there's a real humanitarian issue that you do a good job of describing. I think of like, I think of like, you know, during talking about the ultimate fighter and Levin and what he had gone through in his past life. And, and if you look forward, like I Wikipedia Levin just to kind of see, you know, where did he end up? How did that all go?

1:33:08It's just like, it's a tragedy. Yeah. It's a tragedy. It's a super tragedy. So, um, Michael, I love this book. I love their story. I agree with you. I would, I, if I were you, I would send this to like every U S house of rep seat and Senator and just say, Hey, call me, read this and call me because I think it's, there's, there's a great story to be said, uh, not only giving, you know, more regulation, but really something with teeth. Um, like you said, the Ali act doesn't have teeth. Um, it does, it makes certain things illegal, but you know, what's not reported doesn't ever go known. So, um, I really appreciate you joining me for this podcast today.

1:33:43Um, if you'd like to read a book about incentives, like we're talking about now with these fighters and their lives, both good and bad cage Kings will teach you all about human behavior and biases. and the things we're going to fall back to ultimately in our lives based on how things end up playing out. The story will also teach you about the content and content distribution business as well, as we talked about semaphore and pay-per-view and cable channels, as well as talking with these fighters and how we go about going through these business discussions, the contract law of business. If you enjoyed this podcast, go to Apple, Spotify, YouTube, or wherever you listen to a book with legs.

1:34:22Give us a review. Tell others about the books and authors like Michael that we have on to understand this world that we live in. For our tribe, if you have a great book that you'd like to recommend, email podcast at smeedcap.com. That's podcast at smeedcap.com. You can also send suggestions to our Twitter handle, which is at smeedcap. Thank you for joining us for a Book With Legs podcast. We look forward to the next episode. Thank you for listening to A Book With Legs, a podcast brought to you by Smeed Capital Management. The material provided in this podcast is for informational use only and should not be construed as investment advice.

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